how startups raise venture capital - indianapolis business …...how startups raise venture capital...

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How startups raise venture capital Siblings Jeff and Jessica work at a company with a stodgy HR process and have an idea for software to make it better. They start planning and building the software on nights and weekends. They call their fledgling company Work-Life. The founders hand off the reins, deciding to take on new ventures. Jessica becomes a venture capitalist. Jeff launches another startup. After several months, they're confident enough to quit their jobs. They pour their savings into the company and land a few beta customers. They use the $$ to hire software engineers, salespeople and marketers. Work-Life finish- es the year with $700k in annual contracts. The next year, contracts top $3 million. Customers want new features. So Work-Life sells 1/5 of the company to friends, family members and angel investors for $1 million, which gives the startup a $5 million valuation. The company is growing fast, but its war chest is low. The founders seek more cash, this time from venture capital firms. It sells 1/4 of the company for $4 million, giving it a $16 million valuation. Work-Life expands its team, opens more offices and has two more fundraising rounds, raising $15 million in one. It buys other firms and gears up to go global. The founders and investors decide it’s time to take the company public. It debuts on the New York Stock Exchange, raising $100 million at a $1 billion valuation. Early investors see sizable returns, including one who turned $125,000 into $13 million.

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Page 1: How startups raise venture capital - Indianapolis Business …...How startups raise venture capital Siblings Jeff and Jessica work at a company with a stodgy HR process and have an

How startups raise

venture capital

Siblings Jeff and Jessica work at a company with a stodgy HR process and have an idea for software to make it better.

They start planning and

building the software on nights and weekends. They call their fledgling company Work-Life.

The founders hand off the reins, deciding totake on new ventures. Jessica becomes a venture capitalist.

Jeff launches another startup.

After several months, they're confident enough to quit their jobs.

They pour their savings into the company and land a few beta customers.

They use the $$ to hire software engineers, salespeople and marketers. Work-Life finish-es the year with $700k in annual contracts. The next year, contracts top $3 million.

Customers want new features. So Work-Life sells 1/5 of the company to friends, family members and angel investors for $1 million, which gives the startup a $5 million valuation.

The company is growing fast, but its war chest is low. The founders seek more cash, this time from venture capital firms. It sells 1/4 of the company for $4 million, giving it a $16 million valuation.

Work-Life expands its team, opens more offices and has two more fundraising rounds, raising $15 million in one. It buys other firms and gears up to go global.

The founders and investors decide it’s time to take the company public. It debuts on the New York Stock Exchange, raising $100 million at a $1 billion valuation. Early investors see sizable returns, including one who turned $125,000 into $13 million.